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May 8, 2023

Monday Morning Memo: A View on the European Fund Flows in Money Market Products

by Detlef Glow.

Money market funds got a lot of attention from market observers over the course of the last few months, as the asset class posted remarkable high overall net inflows on a global basis. With regard to this, it is not surprising that the estimated net inflows of €34.1 bn into money market funds over the course of March in Europe raised a lot of attention. But is this really a trend toward money market products—which would be a sign that European investors were switching into a risk-off mode—or have these inflows been caused by other reasons?

Graph 1 shows that there is no general trend toward money market products in Europe. The record inflows in money market products in October 2022 were caused by the so-called LDI crisis in the U.K. pension funds segment. After this, the flows for money market products returned to a rather normal flow pattern.

In more detail, despite the inflows of €34.1 bn in March 2023, money market funds in Europe faced estimated outflows (-€1.3 bn) over the course of the first quarter of 2023.  A view on the preliminary flow numbers for April shows indicative inflows of €12.4 bn into money market products, which do also not indicate a massive shift toward money market products.

That said, I would not assume that European investors are currently in a risk-off mode since bond (+€49.9 bn) and equity funds (+€26.2 bn) were posting healthy inflows for Q1 2023.

Graph 1: Monthly Estimated Net Flows in Money Market Products January 1, 2001 – April 30, 2023 (in bn EUR)

European Money Market Flows

Source: Refinitiv Lipper

So what may have caused the strong inflows into money market products over the course of March? From my point of view these flows have been caused by the fear of a new banking crisis driven by the developments around the First Republic Bank in the U.S., and ultimately by the Credit Suisse crisis. Within this environment it is not surprising that European investors chose money market funds as a safe haven to protect their cash reserves.

With regards to this, one needs to bear in mind that money market funds are also heavily used by corporations in Europe—this means a high percentage of the monthly flows might be driven by corporate decisions like preparing for, or actual distributing dividends, etc. instead of asset allocation decisions by investors. In this regard the inflows into money market products might be money from corporate accounts, as corporations might have moved their unsecured cash reserves into a ring-fenced structure to safeguard the cash and to secure access to liquidity.


This article is for information purposes only and does not constitute any investment advice.

The views expressed are the views of the author, not necessarily those of Refinitiv Lipper or LSEG.

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